Changes to USS
Presentation for USS members
Colin Busby and Eifion Morris APMI
Every effort has been made to present accurate information. Members are advised to check with their employer and/or the USS guides to confirm
their understanding before acting on any information given. This presentation may be recorded for training and audit purposes.
Change
•
Changes affecting current members
•
Changes affecting new joiners
•
Tax relief allowances from 2011
•
Your questions
Changes affecting current
members – Final salary section
Changes affecting current members
1 October 2011
Final Salary Intact
Higher
Normal
Pension Age
Higher
contribution
Change to
pension
increases
Flexible
retirement
Higher Normal Pension Age (NPA)
What is Normal Pension Age?
• USS has always had age 65 Normal ‘Retirement’ Age
• In practice all members could have a full pension at age 60
(assuming employer consents and retiring from active service)
• NPA will mean that you can still retire before 65, with employer
consent, but service from 1 October 2011 will be reduced for each
year/part year earlier than age 65
Exemption for those aged 55 or over on 1 October 2011
• Anyone with a birthday on or before 1 October 1956 exempt from the
NPA change only
Normal Pension Age (NPA)65
Example –retiring at 60 with employer
consent
Age at 30 September 2011
50
Service to 30 September 2011
20 years
Service since I October 2011
10 years
Pensionable salary
£45,000.00
• 30/80 X £45,000
• Total =£16,875.00 pa
Before change
After change
• 20/80 X £45,000 = £11,250.00
• Plus
• (10/80 X £45,000) X 0.793 =
£4,460.62
• Total = £15,710.00 pa
I’m buying extra service to retire at 60
You can still access your pension at 60
• Although it may be lower
You will still get the full value of the extra service you’re
buying
• On retirement from active membership you can still draw benefits
from Added Years in full from the age chosen when contract taken
out
Change to redundancy terms
Redundancy
• wef 1 October 2013 automatic provision of
full early retirement pension ends
• employer can still choose to augment if
they wish
Normal Pension Age to be linked to
rise in State Pension Ages
NPA to increase in line with State Pension Ages
• 1 April 2020
66 (unconfirmed date)
• timetable to be announced for increase to State Pension Ages
Retirement before NPA will be classed as early retirement
• but only in respect of service after any increase
Future increases to NPA - 66
65
100%
100%
96%
April 2020 NPA increases to 66
65
Contribution increase to 7.5%
Increase from 6.35% to 7.5%
Salary (pa) Cost from takehome pay at
6.35% (per
month)
£10,000
£36.00
£15,000
£50.00
£30,000
£94.00
£45,000
£139.00
£60,000* £190.50
£75,000* £238.00
* 40% tax relief applied
Cost from takehome pay at
7.5% (per
month)
£43.60
£61.80
£116.80
£173.60
£225.00
£281.00
Impact on
take home
pay each
month
- £ 7.60
- £11.80
- £22.80
- £34.60
- £34.50
- £43.00
Pension increase change
Rules before 1 October 2011
• Pensions (in payment and for deferred members) are reviewed each
April in line with increases to ‘official pensions’
• ‘official pensions’ = Civil Service, Police, Teachers, NHS
• Official pensions increase in line with Consumer Price Inflation
since April 2011
Pension increase change
Introduction of cap to increases
• Cap on increases applied to service after 1 October 2011
Increases to official pensions
USS increase
5% pa or less
Increases matched
More than 5% pa but less than 15% pa
5% plus 50% of increases above 5%
More than 15% pa
Overall ceiling of 10% pa
Flexible retirement
Flexible retirement from age 55
• Subject to consent of employer and USS
• 2 months’ notice required by USS
2 ‘Flexes’ possible, 3rd is full retirement
• Hours must reduce by at least 20%
• Draw up to 80% of benefits (minimum 20%)
• Early retirement reductions apply before age 60
You continue to build up benefits
• If you flex, you continue to build up further benefits on a part-time basis and
remaining benefits based on future full-time equivalent pensionable salary
Flexible retirement – early payment
reductions
From 60
• Reductions apply to all service for
pre 60 flexes
Before 60
• Exempt members
• Those age 55 or more on 1 October
2011 can receive benefits from age
60 in full with employer consent
• Non-exempt
• Reductions to post 1 October 2011
service, pre 2011 service in full if
employer consents
Other changes
Late retirement (continuing after age 65)
• From 1 October 2011 employer must continue to pay their share
Exceeding 40 years in USS
• From 1 October 2011 employer must continue to pay their share
Employer is not required to back-date
What stays the same?
Death in service benefits
Incapacity benefits
Added years AVC contracts
• For existing contracts
• For new contracts for final salary members
USS money purchase AVCs (Prudential)
Transfers-in
Employer still contributes 16% of salaries
Changes affecting new
entrants from 1 October 2011
Who joins new section?
Any new joiner from 1 October 2011 who has
never been in USS
OR
Deferred member of the final salary section,
having left before 1 October 2011 and rejoins
after 31 March 2014
OR
Left the final salary section with deferred
benefits after 1 October 2011 and rejoin the
scheme more than 30 months after leaving
How does Career Revalued
Benefits work?
Pension calculated each year & ‘banked’
• Formula is 1/80 X Salary for year
• Plus 3 X Pension as tax-free cash
Banked pension & cash increased each year
Increases to official pensions
USS increase
5% pa or less
Increases matched
More than 5% pa but less than 15% pa
5% plus 50% of increases above 5%
More than 15% pa
Overall ceiling of 10% pa
Cost sharing
Cost sharing
Historically employer has met full cost of benefits
(in excess of employee contribution of 6.35% of salary)
Future rises in costs shared 35:65 between members and
employers
Contribution rates reviewed normally every 3 years
Tax relief allowances
from April 2011
Tax relief – pre April 2011
Tax relief
• 20%/40% tax relief on all contributions
Current limit on maximum pension pot is a capital value
of £1.8 million
• Not many USS members affected
Tax relief changes – April 2011
Increase in capital value of benefits each year measured
• Capital value = Growth in pension X factor (19:1 for USS)
• Allowance for inflation on benefits already built up
If capital value more than limit of £50,000 from April 2011 tax charge applies
• Tax charge via annual return
• Always in arrears
• Clarification on how charge will be met
Maximum benefit value at retirement reducing to £1.5 million from April 2012
• Would affect USS members with 40 years’ service and £130,000 pa salary
Salary at start of Salary at end of
year
year (5%
increase)
Pension and lump sum accrual (19:1)
10 years
20 years
30 years
40 years
£50,000
£52,500
£14,499
£16,756
£19,012
£21,268
£60,000
£63,000
£17,399
£20,107
£22,814
£25,522
£70,000
£73,500
£20,299
£23,458
£26,617
£29,775
£80,000
£84,000
£23,199
£26,809
£30,419
£34,029
£90,000
£94,500
£26,099
£30,160
£34,221
£38,283
£100,000
£105,000
£28,999
£33,511
£38,024
£42,536
£110,000
£115,500
£31,899
£36,862
£41,826
£46,790
£120,000
£126,000
£34,799
£40,214
£45,629
£51,044
£130,000
£136,500
£37,698
£43,565
£49,431
£55,297
£140,000
£147,000
£40,598
£46,916
£53,233
£59,551
£150,000
£157,500
£43,498
£50,267
£57,036
£63,804
£160,000
£168,000
£46,398
£53,618
£60,838
£68,058
£170,000
£178,500
£49,298
£56,969
£64,640
£72,312
£180,000
£189,000
£52,198
£60,320
£68,443
£76,565
£190,000
£199,500
£55,098
£63,671
£72,245
£80,819
£200,000
£210,000
£57,998
£67,023
£76,048
£85,073
Salary at start of Salary at end of
year
year (10%
increase)
Pension and lump sum accrual (19:1)
10 years
20 years
30 years
40 years
£50,000
£55,000
£20,437
£28,631
£36,824
£45,018
£60,000
£66,000
£24,524
£34,357
£44,189
£54,022
£70,000
£77,000
£28,612
£40,083
£51,554
£63,025
£80,000
£88,000
£32,699
£45,809
£58,919
£72,029
£90,000
£99,000
£36,786
£51,535
£66,284
£81,033
£100,000
£110,000
£40,874
£57,261
£73,649
£90,036
£110,000
£121,000
£44,961
£62,987
£81,014
£99,040
£120,000
£132,000
£49,049
£68,714
£88,379
£108,044
£130,000
£143,000
£53,136
£74,440
£95,743
£117,047
£140,000
£154,000
£57,223
£80,166
£103,108
£126,051
£150,000
£165,000
£61,311
£85,892
£110,473
£135,054
£160,000
£176,000
£65,398
£91,618
£117,838
£144,058
£170,000
£187,000
£69,485
£97,344
£125,203
£153,062
£180,000
£198,000
£73,573
£103,070
£132,568
£162,065
£190,000
£209,000
£77,660
£108,796
£139,933
£171,069
£200,000
£220,000
£81,748
£114,523
£147,298
£180,073
Salary at end
Salary at start of year
of year
(Promotion)
Pension and lump sum accrual (19:1)
10 years
20 years
30 years
40 years
£15,000
£20,000
£14,444
£25,214
£35,985
£46,755
£20,000
£30,000
£27,175
£49,452
£71,730
£94,007
£36,000
£45,000
£27,540
£46,264
£64,989
£83,713
£100,000
£250,000
£373,374
£722,261
£1,071,149
£1,420,036
AVC options for Final Salary
members
AVC Options
Added years
• Existing contracts unchanged
• Still payable in full from age stipulated in contract
• Pensions from contracts taken out from 1 October 2011 will have cap applied to
pension increases
Money purchase (Prudential)
• No change
AVCs and the Annual Allowance
Still very attractive for most USS members
• You can pay in up to the £50,000 pa Annual Allowance
• Receive full tax relief
Money Purchase AVC payments simply add annual contribution to work out
Annual Allowance
• Annual Allowance without AVCs = £24,000
• Scope to pay up to £26,000 in Money Purchase AVCs
Added Years AVCs will increase amount of service each year
• Calculation therefore based on increase in pension value over year, including Added Years AVCs
How to pay AVCs – Added Years
Added
Years
Money
Purchase
Use modeller
on
www.uss.co.uk
Contact
Prudential
directly
Contact
Pensions
Office
Face-2-face
0800 515914
Summary of changes
Final salary calculation retained for existing members and
certain re-joiners
• Normal Pension Age now 65 (for future service)
• Contribution rate increase to 7.5%
• Pension increase changes
• Flexible retirement
• Changes for retirements due to redundancy
• Revalued Benefits section of scheme for new entrants
More information
• Pensions office contacts
• USS website – www.uss.co.uk
• Prudential – www.pru.co.uk/uss
– 0800 515914